Question
QUESTION: Consider the balance sheet of First Bank of Woebegone (FBW), a rather local bank: ASSETS 25 Reserve account at the Federal Reserve Interest may
QUESTION: Consider the balance sheet of First Bank of Woebegone (FBW), a rather local bank:
ASSETS
25 Reserve account at the Federal Reserve Interest may change every 6 weeks at FOMC meetings
315 Auto loans, interest rate Changes yearly based on LIBOR
145 Credit card loans, Interest rate based on 1-Year US, Treasury Note, adjusted every 4 months
800 Home mortgage loans, rates Adjusted semi-annually based on 10-year Treasury bond
50 Bank premises
LIABILITIES AND CAPITAL 45 checking deposits, 0.1% annual interest
170 money market deposits, interest changes monthly
780 Nine-month time deposits, interest rate fixed during the nine months
210 Loans from other banks, rates based on Prime Rate, changes weekly
195 Capital
a) What is the gap between FBWs rate-sensitive assets and liabilities at 7 months maturity?
b) What is the gap between FBWs rate-sensitive assets and liabilities at 14 months maturity?
c) How much would FBWs net income change if all interest rates rose 3 percentage points 14 months from now?
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